SBS Corporation Industrial Detergent Feasibility Analysis: NPV, IRR, and Sensitivity Study Assignment

Project Overview

SBS Corporation has developed a new industrial detergent for motor vehicle garages. To commence production, the project requires an initial equipment investment of RM1.2 million and net operating working capital equal to 10% of the 1st-year sales amount, with subsequent years requiring 15% of the next year’s sales. The project is planned for a 5-year life cycle with operational continuity throughout.

Key Financial Details:

• Sales Projections:
  • 150,000 units annually at RM10/unit in Year 1.
  • Annual sales price increases by 2% after Year 1.
• Cost Structure:
  • Variable Cost: RM4.50/unit, increasing by 5% annually.
  • Fixed Costs: RM320,000 in Year 1, increasing by 3% annually.
• Depreciation:
  • Equipment depreciated using the straight-line method over 5 years.
  • Salvage value: RM120,000; estimated scrap value: RM80,000.
• Tax and Discount Rates:
  • Corporate Tax Rate: 25%.
  • Weighted Average Cost of Capital (WACC): 13%.

Tasks for Analysis:

1. Spreadsheet Model Development:

• Create a model to compute the project’s Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period.

Answer

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